Rising numbers crossing the £100k threshold
Recent discussions around taxation in the UK have spotlighted a growing reality: around two million workers are expected to earn more than £100,000 in the coming year. While crossing the £100k mark is a milestone for many professionals, it also triggers changes in how much of each extra pound they take home. The combined effect of income tax, National Insurance (NI), and student loan repayments means the marginal tax rate for those in this bracket can be substantial.
Understanding the marginal rate at this level
For those earning between £100,000 and £125,140, the marginal income tax rate—the tax applied to the next pound earned—reaches a high level. When NI is added, the overall marginal impact can climb even higher. Taken together, the marginal rate can approach or exceed 60% for the next pound earned, and potentially reach around 62% when NI is included. This means extra earnings over £100,000 do not translate into a proportional rise in take-home pay. Instead, a large portion of each additional pound is taxed, which affects financial planning and incentives for high earners.
Income tax bands and the personal allowance
Across the UK, income tax operates with bands and a gradually tapering personal allowance. As income rises, some taxpayers lose portions of their tax-free personal allowance, effectively increasing the rate at which their income is taxed. This interaction becomes particularly pronounced for individuals approaching £100k, where the loss of the personal allowance collides with the higher-rate tax band.
National Insurance contributions add to the burden
National Insurance is an additional consideration for high earners. The NI thresholds and rates mean that as income increases, more earnings become liable for NI contributions. When combined with higher-rate income tax, the total effective marginal rate can be well over 60% for those earning above £100k. The structure is designed to fund state benefits while ensuring that higher earners contribute proportionally to public services.
Student loan repayments: another factor for graduates
Graduate earners may also face student loan repayments depending on the repayment plan. In the UK, many graduates begin repaying their student loans once their income exceeds a set threshold. As earnings rise, repayments can add another bite to take-home pay, further narrowing the portion of income that arrives in the bank. The exact impact depends on the repayment plan (Plan 1, Plan 2, or other variations), as well as the prevailing interest rates and any government changes to repayment terms.
What this means for financial planning
For workers nearing or surpassing the £100k mark, careful financial planning becomes essential. Considerations include:
– Tax planning: use of tax-efficient arrangements where appropriate, within the law, to manage marginal rates.
– Pension contributions: higher-rate earners can sometimes optimize contributions to reduce taxable income, within annual allowances.
– Benefits and allowances: some employers offer benefits that can be structured to improve overall compensation without increasing taxable income.
– Student loan strategy: understanding when to accelerate or defer repayments can affect cash flow and long-term debt levels.
Policy implications and the broader picture
The trend of more workers moving into six-figure salaries raises questions about the balance between incentivising high performance and ensuring fair tax contributions. Policymakers often review thresholds, reliefs, and the design of NI to ensure the system remains sustainable while protecting those most vulnerable to inflation. For high earners and their advisers, staying informed about any changes to tax bands, NI rules, and student loan policies is crucial to avoid unexpected reductions in take-home pay.
Bottom line
As about two million workers look set to earn over £100,000, the combined effect of income tax, NI, and student loan repayments means the marginal rate on additional earnings remains high. This reality shapes financial planning, career choices, and discussions about taxation policy in the years ahead.
